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GAO report on the USPS

GAO report on the USPS

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GAO
United States Government Accountability Office
Testimony
Before the Subcommittee on Federal Financial Management,Government Information, Federal Services, andInternational Security, Committee on Homeland Securityand Governmental Affairs, U.S. Senate
U.S. POSTALSERVICERestructuring UrgentlyNeeded to AchieveFinancial Viability
Statement of Phillip Herr, DirectorPhysical Infrastructure Issues
For Release on DeliveryExpected at 10:00 a.m. EDTThursday, August 6, 2009
GAO-09-958T
 
What GAO Found
United States Government Accountability Office
Why GAO Did This Study
H
ighlights
Accountability Integrity Reliability
Au
g
u
s
t6,2009
 
U.S. POSTAL SERVICE
Re
s
tructurin
g
Ur
g
ently Needed to Achieve FinancialViability
Highlights ofGAO-09-958T, a testimonybefore the Subcommittee on FederalFinancial Management, GovernmentInformation, Federal Services, andInternational Security, Committee onHomeland Security and GovernmentalAffairs, U.S. Senate
T
The U.S. Postal Service’s (USPS)financial condition has worsenedsince GAO testified before thisSubcommittee last January, withthe recession and changing mailuse causing dramatic declines inmail volume and revenues despite postal rate increases. USPS expectsthese declines to lead to losses andcash shortfalls even if ambitiouscost-cutting is achieved.Mail use has been changing overthe past decade as businesses andconsumers have moved toelectronic communication and payment alternatives. Mail volume peaked in 2006, and USPS expectsthat much of the lost volume willnot return after the recession isover.USPS’s business model has reliedon growth in mail volume to covercosts, but USPS has not been ableto cut costs fast enough to offsetthe accelerated decline in mail volume and revenue. Thus, GAOadded USPS’s financial condition tothe High-Risk List in July 2009.This testimony (1) updates USPS’sfinancial condition and outlook andexplains GAO’s decision to placeUSPS’s financial condition on theHigh-Risk List and (2) discusses theneed for USPS to restructure and presents options and actions thatUSPS can take. It is based onGAO’s past and ongoing work.
USPS’s financial condition and outlook continue to deteriorate with aworsening outlook for mail volume and revenue. USPS now projects mail volume to decline to 175 billion pieces in fiscal year 2009, a 13.7 percentdecrease from fiscal year 2008. As a result, USPS projects for fiscal year 2009:
 
a net loss of $7 billion, even if it achieves record savings of more than $6billion;
 
an increase in outstanding debt to a total of $10.2 billion; and,
 
despite this borrowing, an unprecedented $1 billion cash shortfall.Thus, USPS expects to generate insufficient cash to fully make its mandated payment of $5.4 billion for future retiree health benefits due by September 30,2009.When GAO added USPS’s financial condition to its high-risk list, it reportedthat USPS urgently needs to restructure to address its current and long-termfinancial viability. The short-term challenge for USPS is to cut costs quicklyenough to offset the unprecedented volume and revenue declines, so that itcan cover its operating expenses. The long-term challenge is to restructureUSPS operations, networks, and workforce to reflect changes in mail volume,use of the mail, and revenue. Accordingly, GAO called for USPS to developand implement a broad restructuring plan—with input from the PostalRegulatory Commission and other stakeholders and approval by Congress andthe administration—that includes key milestones, time frames for actions,identifies what steps Congress and other stakeholders may need to take, andaddresses how USPS plans to:
 
realign postal services, such as delivery frequency, delivery standards, andaccess to retail services, with changes in the use of mail by consumers andbusinesses;
 
better align costs and revenues, including compensation and benefit costs;
 
optimize its operations, networks, and workforce;
 
increase mail volumes and revenues; and
 
retain earnings, so that it can finance needed capital investments andrepay its growing debt.To achieve financial viability, USPS must align its costs with revenues,generate sufficient earnings to finance capital investment, and manage itsdebt. Key restructuring actions that USPS could take include the following:
 
reduce compensation and benefit costs,
 
consolidate retail and processing networks and field structure, and
 
generate revenue through new or enhanced products.USPS has proposed two actions that would require congressional approval: 1)changing funding requirements for retiree health benefits and 2) reducing maildelivery from 6 to 5 days. USPS’s financial viability is critical as it plays a vitalrole in the U.S. economy and in providing postal services to all communities.
View GAO-09-958T or key components. For more information, contact Phillip Herr at(202) 512-2834 orherrp@gao.gov.
 
 Page 1 GAO-09-958T
Mr. Chairman and Members of the Subcommittee:I am pleased to participate in this hearing on the U.S. Postal Service’s(USPS) financial condition. My statement will (1) provide updatedinformation on USPS’s financial condition and outlook and explain ourrecent decision to place USPS’s financial condition on our High-Risk Listand (2) discuss the need for USPS to restructure and present options andactions USPS can take to address both its current and its long-termchallenges.My statement is based upon on our past and ongoing work, including ourreport adding USPS to our High-Risk List,
1
and our continued monitoringof USPS’s financial condition and outlook. We conducted our work for thisstatement from May 2009 to August 2009 in accordance with all sections of GAO’s quality assurance framework that are relevant to our objectives.The framework requires that we plan and perform the engagement toobtain sufficient and appropriate evidence to meet our stated objectivesand to discuss any limitations in our work. We believe that the informationand data obtained, and the analysis conducted, provide a reasonable basisfor any findings and conclusions in this product.USPS’s financial condition and outlook have continued to deterioratesince I testified before this Subcommittee last January, as the prospectsfor both mail volume and revenue worsen. USPS currently projects fiscal year 2009 mail volumes of about 175 billion, which would be 28 billionfewer pieces than fiscal year 2008. This 13.7 percent decline, triple the 4.5 percent decline for fiscal year 2008, would be the largest percentagedecline since the Great Depression. As a result, USPS is projecting thefollowing for fiscal year 2009:
USPS’s FinancialCondition Continuesto Deteriorate, andWe Have Added ItsFinancial Condition toOur High-Risk List
 
a net loss of about $7 billion, even if USPS achieves record cost savings of about $6 billion;
 
an increase in outstanding debt to a total of $10.2 billion; and
 
despite this borrowing, an unprecedented $1 billion cash shortfall.USPS has reported that it does not expect to generate sufficient cash fromoperations to fully make its mandated fiscal year 2009 payment of $5.4
1
GAO,
 High-Risk Series: Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability
,GAO-09-937SP(Washington, D.C.: July 28, 2009).

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